Geordie Kidston, Head of Research
52 week high yield£2.88 - £2.21
Hist / pros per11.0 - 11.5
Equity market cap£4,861m
J Sainsbury is a leading UK grocery chain. After a generation of growth in retail space, the UK grocery market is in excess supply and suffering a price war as ultra low cost competitors enter. J Sainsbury has suffered both from a loss of market share and the increasing costs of remaining price competitive. The Group has curbed new space expansion, reduced capital expenditure and the dividend was cut at the May 2015 results. The balance sheet strain of the ensuing indebtedness is pronounced and well understood. Despite cutting dividends and capital expenditure, the Group’s commitment to a certain level of pricing position is strongly felt and a rights issue to bolster the balance sheet is possible. Forward forecasts of the dividend show ongoing cuts, such is the current severity of competition. The Group nevertheless has substantial asset backing. The worst of the sector attrition and consolidation appears priced in, with the Qatari stake in J Sainsbury overhanging the market.